Getty Images Shoppers may opt to give new, pricey Apple devices rather than jewelry as presents this year.
Holiday wish lists may be filling up with requests for new Apple Inc. devices, which could add up to lackluster sales for the jewelry industry.
Apple AAPL, +0.67% introduced three new mobile phones and a new Apple Watch earlier this month. The iPhone XS Max starts at $1,099 and can cost up to $1,449; the iPhone XS starts at $999; and the iPhone XR starts at $749.
The Apple Watch Series 4 starts at $399 with GPS or $499 with GPS and cellular, but can reach about $1,400 for the special edition version created through a collaboration with the luxury brand Hermes.
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“By charging more for these essential tech products, it’s taking share of wallet from other discretionary items,” said Jaime Ward, group head of Citizens Bank’s retail finance group. “Jewelry will unfortunately be hurt by that.”
There are a number of factors impacting the jewelry sector heading into the holiday season, according to Ward. For example, though shoppers are prepared to spend, they prefer to buy experiences over stuff. Spending on jewelry hasn’t kept up with the rate of consumer discretionary spending.
Shoppers are prepared to spend, according to the holiday forecast from Deloitte, which expects retail sales to climb a “robust” 5% to 5.6% year-over-year, with seasonally adjusted sales excluding motor vehicles and gasoline to forecast to exceed $1.1 trillion between November and January.
“The anticipated growth in holiday sales is likely because of solid disposable personal income growth, which we expect will be in the 5% to 5.4% range,” said Daniel Bachman, Deloitte’s U.S. economic forecaster, in a statement.
Plus, many jewelry stores are located in malls, which have taken a hit from reduced traffic. While it’s true that some consumers buy jewelry online, many aren’t comfortable with making a big-ticket jewelry purchase from a website. Ward says it’s a “trust factor.”
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“Customers need to be assured they’re top quality and getting what they expect,” he said.
Deloitte expects e-commerce sales to increase 17% to 22%, reaching $128 billion to $134 billion. E-commerce sales rose 16.6% in 2017.
Moreover, the Apple Watch is diverting sales of traditional watches.
“The cool item to get under the Christmas tree is an Apple Watch, not necessarily a watch from the local jewelry store,” he said.
Companies like Fossil Group Inc. FOSL, -8.42% and Movado Group Inc. MOV, -5.18% have introduced their own smartwatches to compete. Even those competing smartwatches could suffer.
Fossil shares (up nearly 200% for the year so far) and Movado stock (up 29%) have both rallied in 2018.
“We expect Apple will sell almost 10 million watches in the December quarter, and could account for almost $9 billion total calendar year 2018 sales,” wrote Cascend Securities. “Competing watches expected for the holiday season from Google and others are unlikely to be an issue for Apple: customers already in the Apple ecosystem will stay with the Apple Watch to use the combined features.”
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Signet Jewelers Ltd. SIG, -1.47% , which counts Zales, Kay Jewelers, and Jared among its store portfolio, thinks consumers prefer a present that has meaning.
“While latest-fad technology gifts certainly have appeal, jewelry is timeless and appropriate for so many occasions, certainly beyond the holidays,” the company said in a statement. “We are confident that consumers will find jewelry as the perfect gift to celebrate life and express love for family and friends this holiday season.”
Signet shares have climbed nearly 15% for the year so far, outpacing the S&P 500 index SPX, +0.36% which is up 9.4% for the period.
But, Ward points out, a new device is more useful.
“You can do so much more with the phone than earrings,” he said.
In an ideal world – or if you have the money to spend – you can have both. Tiffany & Co. TIF, -0.48% , which analysts at Cowen call their “favorite luxury stock idea,” operates in that space. In a Wednesday note, Cowen maintained its outperform stock rating and $150 price target on Tiffany & Co. for a variety of reasons, including brand equity, a pipeline of new products and strength in areas like bridal.
But if you’re looking for something that dazzles, a shiny new gadget does the trick too.
“If you think about how the American consumer bought a car in the 50s and 60s, there was a new model every year,” he said. “If you were doing well, you bought the newest. There’s a similar phenomenon with the phones.”
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Many Apple users may be at the point where they are ready for an upgrade.
“The launch of a wider array of ‘X-gen’ iPhones is providing an iPhone user base that is on an aging installed base of devices with more choices to upgrade to the new form factor,” wrote Piper Jaffray in a September note. “Based on this, we recommend owning Apple for the ‘super-long’ cycle involving an ongoing multi-year move to the ‘X-gen’ iPhone lineup.”
Piper Jaffray rates Apple shares overweight with a $250 price target.
